by Daniel Brouse
July 19, 2025
California offers a stark preview of what to expect as the U.S. property insurance market begins to unravel under the weight of climate change. Insurers continue to withdraw from wildfire-prone and flood-prone areas, despite recent policy efforts aimed at stabilizing the market. The January 2025 Los Angeles wildfires alone generated billions in claims, leaving insurers scrambling to pay out as damages escalate beyond modeled expectations.
This collapse is visible in the growing number of households nationwide unable to find private property coverage, forcing them into state-chartered "insurers of last resort." The share of coverage provided by these state-backed plans is a key metric for assessing the health of a state's insurance market--and the trends are alarming.
In California, the state-chartered FAIR Plan is experiencing unprecedented growth as private insurers exit the voluntary market. Between September 2023 and June 2025, FAIR Plan policies nearly doubled from 330,000 to 610,000, reflecting a growing climate-driven insurance crisis. As climate change drives more destructive wildfires, flash floods, and extreme weather, insurers are dropping policies or refusing to renew coverage, forcing more Californians to turn to the FAIR Plan for basic protection.
By June 2025, the FAIR Plan's total exposure ballooned to $650 billion, a 42% increase since September 2024 and a staggering 289% increase since Fiscal Year 2021. This exposes the plan--and by extension, the state's taxpayers and remaining insurers--to massive financial risk should large-scale disasters continue, which is increasingly likely under warming conditions.
In February 2025, following the catastrophic Los Angeles wildfires that caused tens of billions in damages, California Insurance Commissioner Ricardo Lara authorized the FAIR Plan to impose $1 billion in assessments on the state's insurers to pay wildfire claims. It was the first such assessment since the 1994 Northridge earthquake, highlighting the scale and frequency of modern climate-driven disasters.
To address the growing crisis, Commissioner Lara has launched a new strategy aimed at stabilizing the insurance market. A key policy change now allows insurers to use forward-looking climate models to set rates--a practice previously barred under Proposition 103, the landmark consumer protection law passed in 1988.
"This is about reforming the limits of Proposition 103 and delivering on the promise of insurance access for every Californian," Lara stated.
The decision has sparked intense debate. Consumer groups oppose the policy, warning that it allows insurers to use opaque, proprietary climate models to justify higher rates without accountability. Conversely, insurers and environmental advocates argue that this shift is necessary, enabling the use of science-based risk projections rather than backward-looking claims data in a rapidly changing climate.
California's insurance turmoil is not an isolated incident but a leading indicator for the broader U.S. market. As climate change accelerates, states like Florida, Louisiana, and Texas are witnessing similar patterns of insurance withdrawal and reliance on last-resort state insurers, driven by increasing hurricane, flood, and wildfire risks. This trend signals a growing incompatibility between capitalism's risk pricing mechanisms and the systemic, accelerating risks of climate change.
The collapse of private insurance markets under climate stress is not merely a financial problem but a systemic threat to housing stability, municipal solvency, and economic resilience. As disasters become more frequent and severe, the cost of maintaining insurance will skyrocket, pushing millions into underinsurance or complete uninsurance.
California's experience is a warning: climate change is already breaking the assumptions underpinning private insurance, and capitalism's profit models are proving incompatible with a destabilizing climate system. While policy adjustments such as allowing climate modeling for rate-setting may temporarily slow the collapse, they are insufficient to address the root cause--continued fossil fuel emissions and land-use practices that exacerbate climate risks.
Unless systemic mitigation efforts are accelerated and adaptation plans are implemented at scale, California's insurance crisis will become the norm across the nation, with devastating consequences for homeowners, local economies, and the financial stability of states.
* Our climate model -- which incorporates complex social-ecological feedback loops within a dynamic, non-linear system -- projects that global temperatures could rise by up to 9°C (16.2°F) within this century. This far exceeds earlier estimates of a 4°C rise over the next thousand years, signaling a dramatic acceleration of warming.
We analyze how human activities (such as deforestation, fossil fuel use, and land development) interact with ecological processes (including carbon cycling, water availability, and biodiversity loss) in ways that amplify one another. These interactions do not follow simple cause-and-effect patterns; instead, they create cascading, interconnected impacts that can rapidly accelerate system-wide change, sometimes abruptly. Understanding these dynamics is essential for assessing risks and designing effective climate adaptation and mitigation strategies.